Metatrader Indicator (MT4/MT5)
The Stretch is a technical concept developed by Toby Crabel, a self-made millionaire commodities trader and author of the book "Day Trading with Short-term Price Patterns". The indicator is designed to identify potential breakout levels in the market by calculating the minimum average price movement or deviation from the open price during a specific time period.
To calculate the Stretch, the indicator takes the 10 period Simple Moving Average (SMA) of the absolute difference between the open price and either the high or low price of the day, whichever difference is smaller. This value is then used to identify two breakout levels for the current trading session, which are displayed on the chart as two lines.
The PZ Stretch indicator is intended to be used as a tool to help traders identify potential entry and exit points in the market, and can be applied to any asset class or time frame. It is recommended that traders have a strong understanding of the underlying principles and techniques described in Crabel's book before using the stretch indicator in their trading strategies.
The Opening Range Breakout Strategy
Using this strategy, the trader places a buy stop just above the open price plus the Stretch and a sell stop just below the open price minus the Stretch. The first stop triggered enters the trader into the trade and the other stop becomes the protective stop.
Crabel's research shows that the earlier in the trading session the entry stop is hit the more likely the trade will be profitable at the close. A market movement that kicks off a trend quickly in the current trading session could add significant profit to a trader's position by the close and should be considered for a multi-day trade.
Extending Crabel's research results it is obvious that as time passes and we are not filled early on then the risk increases and it becomes prudent to reduce the size of the position during the day. Trades filled towards the end of the day carry the most risk and the later in the day the trade is filled the less likely the trader will want to carry that trade overnight.
Opening Range Breakout Preference Strategy
An ORBP trade is a one sided Opening Range Breakout (ORB) trade. If other technical indicators show a strong trend in one direction then the trader will exercise a preference for the direction in which to trade the ORB trade. A stop to open a position would be placed on the side of the trend only and if filled a protective stop would then be placed.
The calculation of where to place the "stop to open" would be the same as that for the ORB trade: For longs, the Open price plus the Stretch and for shorts the Open price minus the Stretch.
When loading the expert to any chart, you will be presented with a set of options as input parameters. Don't despair if you think they are too many, because parameters are grouped into self-explanatory blocks.
- Strech Timeframe
- The timeframe from which to calculate the stretch (the default is D1).
- Strech Period The period for the SMA used to calculate the stretch (the default is 10).
- Moving Average Period The period used to calculate the average stretch.
- Max. History Bars
- Amount of past bars to evaluate. Decrease it to speed up the indicator.
- Does the indicator repaint?
- The stretch and average stretch does not repaint. The breakout lines are recalculated
- Does the indicator implement alerts?
- No, it does not.